Summary
holding that exercising jurisdiction over holding company whose subsidiary was its "agent" did not offend due process
Summary of this case from Rates Tech. Inc. v. Broadvox Holding Co.Opinion
99 Civ. 9284 (RCC)
September 30, 2002
Opinion Order
Before the Court is Defendant Global-Tech's motion to dismiss the complaint on the grounds that this Court lacks personal jurisdiction over it. Plaintiff SEB S.A. cross-moves to amend the complaint to conform to the evidence and to add three additional defendants. For the reasons explained, Defendant Global Tech's motion is denied, as is Plaintiff SEB's motion to amend the complaint.
I. Background
Plaintiff SEB S.A. ("Plaintiff' or "SEB") brings this patent infringement action claiming deep fryers sold by Defendants Montgomery Ward Co., Global-Tech Appliances ("GlobalTech" or "Defendant") and Pentalpha Enterprises infringe on its U.S. Patent No. 4, 995, 312. Defendant Global-Tech moved to dismiss the complaint for lack of personal jurisdiction in October 1999. Then-District Judge Parker stayed the motion pending resolution of the Plaintiffs request for a preliminary injunction. Judge Parker proceeded to grant two preliminary injunctions in Plaintiffs favor, one in December 1999, which was upheld on appeal by the Federal Circuit, and one in June 2001. Discovery is complete and the case has since been reassigned to this Court for consideration of Global-Tech's motion to dismiss and further proceedings.
Defendant Montgomery Ward is in bankruptcy and the action is stayed against it.
Global-Tech is a corporation organized under the laws of the British Virgin Islands, with its principal place of business in Hong Kong. Global-Tech Prospectus at 5, Miller DecI. Ex. 1 (hereinafter "Prospectus"). Global-Tech styles itself as holding company whose subsidiaries, including Defendant Pentalpha Enterprises, manufacture and sell consumer appliances. GlobalTech itself does not manufacture or sell anything. June 8, 2001 John Sham Dep. at 36 (hereinafter "Sham Dep."); Oct. 25, 2001 Brian Yuen Dep. at 68-69 (hereinafter "Yuen Dep."); but see Prospectus at 3 (Global-Tech referring to itself as a "manufacturer and designer" of appliances). Global-Tech files consolidated financial statements with its subsidiaries, it agrees to indemnify its customers and its subsidiaries hold several United States patents. Prospectus at 9, 10.
Proposed defendant John Sham is the president of both Defendant Global-Tech and Defendant Pentalpha, as well as two of Global Tech's other subsidiaries, proposed defendants Pentalpha Hong Kong and Wing Shing. Sham Dep. at 9-10; 15. Mr. Sham testified that he traveled to New York on behalf of Global-Tech several times in connection with its initial public offering in 1998 and has since returned "at least a couple of times." Sham Dep. at 31. He was unable to recall whether he discussed business during his subsequent trips to New York. Sham Dep. at 32. While Global-Tech is listed on the New York Stock Exchange (NYSE), it does not own or lease property in New York or have employees in New York. Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 97 (2d Cir. 2000) ("[I]t is not that activities necessary to maintain a stock exchange listing do not count, but rather that, without more, they are insufficient to confer jurisdiction.").
A member of Global-Tech's board of directors, Brian Yuen, lives and works in New York City. Mr. Yuen is the President of another Global-Tech subsidiary, Global-Tech USA, Inc., a Delaware corporation authorized to do business in New York. Yuen Dep. at 36-37. GlobalTech USA, Inc. has a mailing address in New York. Yuen Dep. at 17-18. Mr. Yuen is GlobalTech USA's only employee and the corporation generates income solely by consulting for Global-Tech. Yuen Dep. at 38. Mr. Yuen began consulting for Global-Tech in 1997-1998 for purposes of making presentations to investment bankers for the initial public offering. Yuen Dep. at 15. He subsequently became the president, secretary and director of Global-Tech, USA and a director of Defendant Global-Tech. Yuen Dep. at 19-20. Global-Tech USA provides investor relations services for Defendant Global-Tech and Mr. Yuen sometimes does "acquisition related activities." Yuen Dep. at 41 see also Sham Dep. at 122 (describing Mr. Yuen's public relations role). He only has discussions with potential targets of Global-Tech or its subsidiaries under the direction of John Sham." Yuen Dep. at 41. Mr. Yuen has met with other GlobalTech board members who have come to New York, but a full Global-Tech board meeting has never been held here. Yuen Dep. at 26.
II. Discussion
A. Personal Jurisdiction
Under the Federal Rules of Civil Procedure, a court may exercise jurisdiction over any defendant "who could be subjected to the jurisdiction of a court of general jurisdiction in the state in which the district court is located." Fed.R.Civ.P. 4(k)(1)(a). Accordingly, the Court must first determine whether a statutory basis for personal jurisdiction over Defendant GlobalTech exists under New York's C.P.L.R. and, if it does, the Court must consider whether the exercise of such jurisdiction comports with the requirements of due process. J.L.B. Equities, Inc. v. Ocewen Financial Corp., 131 F. Supp.2d 544, 547 (2001) (citing International Shoe Co. v. Washington, 326 U.S. 310 (1945)). Normally, a plaintiff faced with a Rule 12(b)(2) motion must make just a prima facie showing of jurisdiction. DiStefano v. Carozzi North America. Inc., 286 F.3d 81, 84 (2001). "Where, as here, . . . the parties have engaged in extensive discovery concerning the [D]efendant's contacts with the state," the Plaintiffs "showing must include an averment of facts that, if credited by the trier of fact, would suffice to establish personal jurisdiction over" the Defendant. J.L.B. Equities. Inc. v. Ocwen Financial Corp., 131 F. Supp.2d at 547.
In New York, a foreign corporation is subject to general personal jurisdiction if it is "doing business" in the state. See N.Y.C.P.L.R. § 301. "[A] corporation is "doing business' and is therefore "present" in New York and subject to personal jurisdiction with respect to any cause of action, related or unrelated to the New York contacts, if it does business in New York "not occasionally or casually, but with a fair measure of permanence and continuity.'" Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 58 (2d Cir. 1985) (internal citations omitted). "[A] court of New York may assert jurisdiction over a foreign corporation when it affiliates itself with a New York representative entity and that New York representative renders services on behalf of the foreign corporation that go beyond mere solicitation and are sufficiently important to the foreign entity that the corporation itself would perform equivalent services if no agent were available." Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000) (citing Frommer v. Hilton Hotels Int'l, Inc., 19 N.Y.2d 533, 537 (1967) (finding jurisdiction over foreign hotel chain based on the activities of affiliated reservations service); Gelfand v. Tanner Motor Tours, Ltd., 385 F.2d 116, 120-21 (2d Cir. 1967) (finding jurisdiction over tour operator based on the activities of affiliated travel agent)).
The presence of a subsidiary in New York alone is not enough to establish the parent's presence in the state. Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117, 120 (2d Cir. 1984). For New York courts to exercise jurisdiction in this situation, the subsidiary must be either an "agent" or a "mere department" of the foreign parent. Jazini v. Nissan Motor Co., 148 F.3d 181, 184 (2d Cir. 1998). "To be an agent of the parent, the plaintiff must show that the subsidiary "does all the business which [the parent] could do were it here by its own officials."' J.L.B. Equities. Inc. v. Ocwen Financial Corp., 131 F. Supp.2d at 549 (quoting Frummer, 19 N.Y.2d at 537); Wiwa, 226 F.3d 88, 95-96 (2d Cir. 2000) (finding jurisdiction over foreign holding company based on agency theory where subsidiary operated an office in New York whose sole purpose was to attract investors to invest in the holding company). "The agent must be primarily employed by the defendant and not engaged in similar services for other clients." Wiwa, 226 F.3d at 95. The Plaintiff need not demonstrate a formal agency agreement or that the Defendant exercised control over its agent. Id. (internal citations omitted). Alternatively, to demonstrate that a subsidiary is a "mere department" of its parent, New York courts consider the following four factors: (1) common ownership; (2) financial dependency of the subsidiary on the parent corporation; (3) the degree to which the parent corporation interferes in the selection and assignment of the subsidiary's executive personnel and fails to observe corporate formalities; and (4) the degree of control over the marketing and operational policies of the subsidiary exercised by the parent. Jazini v. Nissan Motor Co., 148 F.3d at 184.
The Court finds that Global-Tech U.S.A., which is indisputably present in New York, is arm agent of Defendant Global-Tech. See Wiwa, 226 F.3d at 96 (finding personal jurisdiction based on agency where function of U.S. subsidiary was investor relations and those services were fully funded by the foreign defendant). Global-Tech U.S.A.'s sole employee and its president, secretary and director, Brian Yuen, testified that Global-Tech U.S.A.'s function is "mostly [to] provide investor relations . . . talk and communicate with investors of [Defendant] Global-Tech Appliances Inc." Yuen Dep. at 40-41. Further, Global-Tech USA's only other tasks are performed at "the direction of John Sham," the CEO of Defendant Global-Tech. Yuen Dep. at 42. Global-Tech's income is solely derived from the public relations work it performs for Global-Tech. Yuen Dep. at 38. Accordingly, the Court finds Defendant Global-Tech is present in New York through its agent subsidiary Global-Tech USA.
Jurisdiction over Defendant is considered "general" because Plaintiffs claim is not related to Global-Tech's New York contacts. Accordingly, for the exercise of jurisdiction to be proper, Plaintiff must demonstrate that Defendant has "'continuous and systematic general business contacts'" with New York. Wiwa, 226 F.3d at 98 (quoting Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 568 (2d Cir. 1996)). In assessing the sufficiency of a defendant's contacts with New York, "both this court and the New York courts have focused on a traditional set of indicia: for example, whether the company has an office in the state, whether it has any bank accounts or other property in the state, whether it has a phone listing in the state, whether it does public relations work there, and whether it has individuals permanently located in the state to promote its interests." Id. (citing Hoffritz for Cutlery, 763 F.2d at 58; Frummer, 19 N.Y.2d at 537)). Here, Global-Tech USA has a mailing address in New York and Mr. Yuen, its sole employee, works out of his New York City residence. Yuen Dep. at 16-18. Global-Tech USA's purpose is to provide public and investor relations services for Defendant Global-Tech. Yuen Dep. at 41; Sham Dep. at 122. Global-Tech USA's president, secretary, director and sole employee, Brian Yuen, resides in New York, was educated in New York and permanently works here promoting Global-Tech's interests. Yuen Dep. at 5-6. The Court finds these contacts are sufficient.
Once the Court has determined that the Defendant is present in New York, it must decide whether the exercise of jurisdiction is fair and reasonable under the circumstances of the case. Chaiken v. VV Publishing Corp., 119 F.3d 1018, 1027 (2d Cir. 1997). To avoid jurisdiction, a defendant must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable. Wiwa, 226 F.3d at 99 (internal citations omitted). Global-Tech relies on a decision by the District Court in New Jersey that dismissed the same Plaintiff's case on the grounds that the court lacked personal jurisdiction. See SEB S.A. v. Sunbeam Corp. et al., No. 98 Civ. 1050 (D.N.J. July 14, 1999). That case, however, involved Defendant's contacts with New Jersey, not New York. Global-Tech does not have a subsidiary doing business in New Jersey, it does in New York. While it is true that Defendant could be inconvenienced by litigating in New York and the events in question are not particular to New York, Global-Tech is a vast business empire responsible for products under brand names such as Sunbeam, Oster, Mr. Coffee, Montgomery Ward and Fingerhut. Prospectus at 3. Defendant Global-Tech has access to resources necessary to try a case here. It has relationships with New York law firms and there does not appear to be an insurmountable language barrier. Accordingly, the inconvenience would not be great and due process is not offended by exercising jurisdiction over Global-Tech. See Wiwa, 226 F.3d at 99.
B. Amended Complaint
Although Federal Rule of Civil Procedure 15(a) generally governs the amendment of complaints, Rule 21 governs where the proposed amendment adds new parties. Momentum Luggage Leisure Bags v. Jansport, Inc., No. 00 Civ. 7909 (DLC), 2001 WL 58000, at *1 (S.D.N.Y. Jan. 23, 2001) (citing Kaminsky v. Abrams, 41 F.R.D. 168, 170 (S.D.N.Y. 1966)). In deciding whether to permit joinder, however, the Court is guided by the "same standard of liberality afforded to motions to amend pleadings under Rule 15." Soler v. G U, Inc., 86 F.R.D. 524, 527-28 (S.D.N.Y. 1980).
The Supreme Court has explained that refusal to grant leave to amend must be justified by grounds such as undue delay, bad faith, futility, or prejudice to the opposing party. Foman v. Davis, 371 U.S. 178, 182 (1962). Delay alone, without a showing of bad faith or undue prejudice, is not a sufficient basis for denying the right to amend the complaint.State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981). The longer the unexplained delay, however, "the less will be required of the nonmoving party in terms of a showing of prejudice."Evans v. Syrracuse City Sch. Dist., 704 F.2d 44, 47 (2d Cir. 1983). In determining whether Defendants would be prejudiced by the amendment, the Court considers whether the addition of the three proposed defendants "would: (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; [or] (ii) significantly delay the resolution of the dispute." Block v. First Blood Assocs., 988 F.2d at 350 (internal citations omitted). Courts have found an amendment to be especially prejudicial if discovery is already complete. See e.g., Krumme v. Westpoint Stevens Inc., 143 F.3d 71, 88 (2d Cir. 1988).
Plaintiff argues John Sham must be added as a Defendant since he controls Global-Tech and its subsidiaries and has circumvented the Court's orders by moving the deep fryer business among various organizations. Proposed Defendants Pentalpha Hong Kong and Wing Shing are Global-Tech subsidiaries that Plaintiff claims succeeded Defendant Pentalpha's deep fryer business. John Sham is named as the President of Global-Tech in Global-Tech's April 1998 Prospectus, which was available over a year before this case was filed. Prospectus at 12. Plaintiff learned John Sham was the President of several of Global-Tech's subsidiaries at Mr. Sham's deposition, which was taken six months before Plaintiff requested leave to amend the complaint. Sham Dep. 9-10; 15. Plaintiff does not explain its delay in moving to amend the complaint, but claims no additional delay or expense will result from the amendment.
Defendants argue the amendment will be prejudicial because it will further delay the resolution of this case, as the proposed defendants will have jurisdictional and substantive defenses that will have to be explored in discovery or will provide bases for pre-trial motions. The Court agrees that there will likely be additional discovery needed regarding jurisdiction over some of the proposed defendants as well as substantive issues. "One of the most important considerations in determining whether the amendment would be prejudicial is the degree to which it would delay the final disposition of the action." H.L. Hayden Co. v. Siemens Medical Systems, 112 F.R.D. 417, 419 (S.D.N.Y. 1986) (denying leave to amend after finding additional discovery would be required regarding jurisdictional defenses for newly-proposed defendants). Accordingly, as these inquiries would delay the final resolution of this matter, it would be prejudicial to Defendants to permit Plaintiff to amend the complaint at this stage of the litigation. Plaintiff's motion is denied.
III. Conclusion
For the reasons explained, Defendant Global-Tech's application to dismiss the complaint is denied. Plaintiff's motion to amend its complaint to add three defendants is also denied. The parties are to appear for a case management conference in Courtroom 1 7B, 500 Pearl Street on November 1, 2002 at 9:30 a.m.
So ordered.